The European Commission has initiated a Phase II proceeding to conduct an in depth assessment of the proposed acquisition of Fitbit by Google. The proceeding will likely shed some light on the regulation of big tech companies and the much debated relation between competition law and the data economy. The much anticipated result of the proceeding will also have an impact on Swiss consumers and the relevant competition law practice in Switzerland.
Background
Google, the technology company probably best known for its popular search engine, plans to acquire Fitbit, a company in particular active in the development, manufacturing and distribution of wearables, i.e. devices such as smartwatches and fitness trackers. The transaction was signed on 31 October 2019 and publicly announced on 1 November 2019. Google notified the planned concentration to the European Commission (Commission) on 15 June 2020 and submitted a first set of commitments already during the Phase I investigation.
The commitments included the creation of a data silo, i.e. a virtual and separated storage of data. The basic idea of the proposed data silo is to keep certain data collected through wearable devices separate from any other dataset within Google. In particular, the data in the silo would have been restricted from usage for Google’s advertising purposes.
In its preliminary assessment, the Commission has considered that the data silo commitment proposed by Google is insufficient to clearly dismiss the identified competition law concerns. Inter alia, this is because the commitment did not cover all the data that Google would access as a result of the concentration and that would be valuable for advertising purposes.
Based on its preliminary Phase I investigation, the Commission decided to initiate a so called Phase II proceeding and to investigate in-depth whether the proposed transaction is compatible with the single market of the European Union (EU) and may be cleared unconditionally or with remedies, respectively, or whether it has to be blocked.
EU Merger Control – A Brief Overview
Under the EU Merger Control Regulation, the Commission examines planned concentrations with an EU dimension, i.e. if the undertakings concerned exceed the applicable turnover thresholds, as to their compatibility with the EU common market. Such concentrations are notifiable and may only be closed upon clearance by the Commission (standstill obligation or gun jumping prohibition).
With the submission of a complete notification, the Commission has 25 working days’ time to preliminarily assess the notified concentration (so called Phase I investigation). If the parties submit commitments in Phase I, such review period is extended by ten additional working days. At the end of Phase I, the Commission can either clear the concentration (unconditionally or conditionally) or, if it has serious doubts as to the compatibility of the transaction with the common EU market, open a Phase II-proceeding.
A Phase II proceeding generally lasts a maximum of 90 working days, but might be prolonged under certain circumstances. During this time, the Commission carries out an in depth review of the planned concentration. At the end of Phase II, the Commission may clear the transaction (conditionally or unconditionally) or block it if the closing of the planned concentration in view of the Commission led to a significant impediment of effective competition (SIEC) in the common EU market or a substantial part thereof.
The applicability of the SIEC test as substantive test in the EU is one key differentiation to the merger control regime in Switzerland where a qualified dominance test still applies. The modernisation of the merger control regime and thus the introduction of the SIEC test are currently also (again) under discussion in Switzerland.
Preliminary Competition Law Concerns of the Commission
Based on its Phase I investigation, the Commission is concerned that the consummation of the planned acquisition would further strengthen Google’s market position in the online advertising markets. Specifically, the already vast amount of data that Google could use for personalisation of the ads it serves and displays would increase even more. In particular, the Commission has identified serious doubts about the impact of the transaction on the supply of online search and display advertising services as well as on the supply of ad tech services. The latter consist of analytics and digital tools to facilitate the programmatic sale and purchase of digital advertising.
At this point in the proceeding, the Commission considers Google:
According to the Commission, by closing the acquisition of Fitbit, Google would not only purchase the database maintained by Fitbit about its users’ health and fitness, but also the technology required to develop such a database.
The Commission also announced that it would assess the impact of the planned combination of Fitbit’s and Google’s databases and capabilities on the digital healthcare sector, which the Commission believes is still in its early stages in Europe. Furthermore, it plans to assess whether Google would have the ability and incentive to degrade the interoperability of rivals‘ wearables with Google’s Android operating system for smartphones once it owns Fitbit.
The Decision will also Impact Consumers and the Relevant Practice in Switzerland
The examination of the planned acquisition of Fitbit by Google touches upon many currently much debated discussion points in competition law, i.e. in particular the relation between competition law and the data economy, digitisation and new and fast developing technologies as well as the regulation of big tech companies and so called killer acquisitions. Also in Switzerland, the relationship between competition law and big tech/data economy has been the subject of much debate in recent years. However, to date, there has been almost no relevant case law in that regard. This alone makes it worth monitoring the transaction closely.
In addition, the decision may not only shape the competition landscape in the online advertising industry for the years to come as well as the relevant competition law practice in the EU and in Switzerland, but also have a significant impact on consumers and the future treatment of their data also Switzerland. This is why any new developments in connection with this acquisition should be closely monitored.
It is currently unknown whether the planned transaction must also be notified to the Swiss Competition Commission (COMCO). Should this be the case, it can be assumed that the COMCO will be guided in practice by the Commission’s analysis and decision, in particular with regard to possible remedies.
The Commission’s decision is to be expected until 9 December 2020; to be continued.
Further Information:
CORE Attorneys is a boutique law firm in Switzerland, focusing on competition/antitrust law, regulatory and distribution law matters. Visit our News & Insights and follow us on LinkedIn for regular updates on all our focus areas.